The disposal of excrement has been a huge engineering problem throughout the time of civilization. I think the biggest reason for not including it and the refusal for it is the social taboo revolving it. But seen from an objective and challenge viewpoint I can't see why it shouldn't be added.
The simplest implementation would be an excrement substance and an additional zone for marking "latrines". Put the zone down stream of the river and it's a fast solution you don't have to think much about to begin with. Eventually you'll have to dig a pit, if you're further below where you can't simply "flush" it out. Finally, when the population rises there's probably a need to provide a sewer system.
There's not many difficult engineering challenges in DF, apart from the ones you set out for yourself. Providing basic needs is fairly simple, at least with the current agriculture mechanics. Planning how to dispose of waste would add much to gameplay IMO.
Considering the "setting", post 1500's / medieval times, waste was a constant issue in most towns and cities. They mostly dumped everything in the streets to let the rain wash it down to the river. Terrible living conditions. Compare with the romans, who lived healthy lives thanks largely to their technology regarding sewers, even though their cities were huge by the standards of that time.
DF is not suppose to be a sandbox game, but with the current mechanics it's actually pretty close to being one IMHO. I think waste disposal should be a bigger issue, with more solutions than "cleaning" and putting stuff in a refuse pile. Besides, how can you deny another use for magma?
As for the recreational intercourse, I fail to see the point.